Archive | January, 2013

Leveraging Outbound Marketing for Fundraising Campaigns

29 Jan

By Tom Crosby, Marketing Manager, LSN

As a branding, messaging and marketing tool, digital publications are unmatched in their ease of use, cost-effectiveness, and wide deliverability. Whether it is a monthly journal, a weekly newsletter, or a mailing targeted at a list of people you want to keep updated, the savvy life science marketing department will ultimately make use of this medium to gain exposure for their brand and deliver the message to your prospective marketplace.

The benefits of web marketing are as innumerable as they are beneficial; this is no truer for any industry than it is for the life sciences. By instantaneously connecting the entire range of professionals – from drug developers to business developers – the conversations that bring life-saving technologies to market are facilitated in time frames that were unimaginable just decades ago.

Recently, LSN helped a client with a targeted mailing in a fundraising campaign. The client is a drug developer with a novel treatment for an orphan disease for which there was previously no relief, short of disabling the patient’s immune system. The mailing, which went out to a vetted list of 300 new investor contacts, was aimed at developing a pipeline of investor candidates to help raise funds to complete the drug’s clinical trials.

The goal was to broaden the range of investors from VC’s and grants, to mid-level PE, family offices, foundations, and new corporate venture. And by the end of the same day that the mailing went out, there was a 20% open rate for the email (or 67 opens), with 7 actually clicking on the link to his executive summary provided in the email.  Three different foundations dedicated to the exact condition had even seen the call to action, and followed the links to his website.

Considering the Basics of Newsletters

Targeted mailings are only effective in special situations, however. One of the best methods for reaching your audience on a regular basis is some sort of digital canvass, followed up with a phone call canvass. Smaller firms often choose to go with a newsletter-type outreach to their target audience, because it works well to provide ongoing status updates regarding the progress of a company’s product development. At LSN, for example, we make it a weekly objective of ours to write about something industry-related; usually, it is wherever our work takes us throughout the week. The trick is to cover relevant, interesting, and useful information. With a little focus, the right topics inevitably come to light. After all, we are all daily consumers of media. If it interests you, there’s a good chance it will interest industry peers.

In reality, content is one of the easy parts of producing a newsletter. There are many other things to consider when launching your company newsletter that may seem insignificant, but can actually have a large impact on the success or failure of your web marketing campaign. For instance, when will you send your email: early in the morning, or after lunch? Do you wait for California to wake up, or catch Europe in their offices before the end of the day? And on what day of the week? These are just a few of the questions that you must ask yourself when beginning any online campaign. Failure to consider any of these things could mean your mailing gets buried, and the right set of eyes never sees it.

Another important aspect of your mailing campaign is whether you’ll facilitate the mailing in-house, or if you’ll let a third party handle the delivery. Until the last few years, the best option may have been the former. And for smaller operations with a smaller amount of targets to reach, it may still be; it isn’t difficult to manage a list of 500 emails, even with Microsoft Outlook. However, the advantages that third-party clients offer are vast, and they’re getting better all the time.

One of these advantages is flexibility. Doing an in-house mailing means that you either have to keep it simple, or have someone that knows HTML. Third-party sites like Constant Contact, iContact, and Benchmark – in addition to traditional HTML – offer the choice of using browser-integrated creation software. This gives you the opportunity to go as simple as an introductory letter, to as complex as an industry-standard newsletter, while maintaining a professional look and feel along the way.

The biggest advantage of using a newsletter hosting service, however, is using the integrated contact management tools. This covers everything from subscription management to performance tracking. Without help, these tasks can be fairly daunting, even for experienced users, because of the legal implications involved. And while it is interesting and useful to be able to track the success of your newsletter or targeted mailing down to the finest detail, if you are not 100% compliant with the law, your campaign will not get too far. The peace of mind alone is worth your monthly subscription fees. With the health of your contact list constantly being monitored, you are free to focus on the quality of your content and design.

If you are successful in keeping your content at a high level of quality, and don’t step on too many toes along the way, your mailings will eventually pay off. Like most things, it takes time, and a lot of patience; investors aren’t likely to make allocations based on a few well-written articles. However, email correspondence is absolutely vital, and by keeping yourself and your firm on the minds of the right people, your efforts will ultimately pay off in a big way.

Selecting the Right Kind of PE Partner for your Life Science Firm: Part 3 – Mezzanine Debt Funds

29 Jan

By Danielle Silva, Director of Research, LSN

For life science firms, choosing the right kind of private equity fund to partner with can be a difficult task, especially if the business owner does not wish to give up a great amount of their firm’s equity. This issue can be exacerbated if the firm needs further capital in order to grow the business, or possibly finance an acquisition. Last week, we looked at one source of expansion financing, which were private equity groups that use a “growth capital” strategy. This week, we will explore another source of growth financing – mezzanine debt funds.

Mezzanine debt is usually considered a kind of hybrid financing – financing which lays somewhere between debt and equity in a firm’s capital structure. Therefore, mezzanine debt has some characteristics of equity, and some characteristics of debt, falling between senior debt and equity. Some forms of mezzanine debt are convertible debt (meaning the debt issuer has the right to convert the debt into equity), and senior subordinated debt; mezzanine debt is accordingly more junior debt, which means that mezzanine debt issuers are paid back after senior debt holders. Mezzanine debt, however, is senior to equity.

Mezzanine debt is an attractive form of financing for life science firms because it allows business owners the opportunity to access more debt, and thus finance growth or expansion activities without having to give up a good amount of equity. In many cases, business owners will not have to relinquish any equity at all.

Because mezzanine debt is subordinated, however, it has a higher interest rate than senior debt. This is because it is perceived as riskier than senior debt; mezzanine lenders are paid back after senior debt holders. Senior debt holders are essentially the first group to get repaid in the case of liquidation, followed by senior subordinated debt holders (mezzanine lenders), then preferred stock holders, and finally the remainder of the equity stakeholders. Because mezzanine lenders are thus essentially second in line for repayment; there is a higher default risk for mezzanine debt.

One important fact about mezzanine debt is that it is only issued to firms that are cash-flow positive – meaning that mezzanine private equity groups would not issue debt to a pre-revenue company, such as a biotech therapeutics company in pre-clinical development. Mezzanine firms would, however, issue debt to a therapeutics company that, for example, has a couple of products on the market and was seeking to acquire a smaller biotech therapeutics company in order to grow market share.

There are many advantages to using mezzanine debt over other forms of financing; the first, as aforementioned, is that firms have less equity dilution with mezzanine financing than with other forms of private equity – even less so than with growth equity groups who typically do not take a controlling equity stake. Generally, mezzanine lenders will take an observer position (non-voting) on the firm’s board of directors, whereas growth equity funds typically are more operationally focused, and will take an active board seat.

Another advantage is that mezzanine loans are typically longer-term than other forms of debt, and require interest-only payments until their maturity date. Some of the downsides of mezzanine funding are that it is a lot more expensive than other forms of debt, with higher interest rates than other forms of financing.

Furthermore, mezzanine funds may sometimes require firms to give up a portion of their equity upside in order for the fund to achieve their desired rate of return on the debt instrument. Thus for life science firms who are seeking an alternative form of debt to senior debt, and are looking for a form of funding that requires little to no equity dilution, a mezzanine lender may be the solution.

Strategic Investors Aggregating Early Stage Assets

29 Jan

By Max Klietmann, VP of Research, LSN

Recently, two major trends have surfaced in early stage life sciences investment; the concept of the virtual pharma and private equity aggregation of early stage portfolios. According to several conversations I’ve had with these two categories of investors over recent months, these entities are beginning to employ a new strategy to take advantage of the plethora of promising early stage assets available. The basic idea is to grow a synergistic portfolio around a specific silo (indication, technology, etc.) over time. These portfolios of complimentary assets can then be brought directly to market (via third party distribution) or sold into large pharmaceutical companies, whose pipelines are increasingly suffering from a myopia leaving significant market opportunities unaddressed.

The concept is quite simple and intuitive: In the case of a virtual pharma, a group of highly seasoned life sciences and pharma experts raise capital to buy a portfolio of promising early stage academic assets, vet them, and shepherd them through clinical trials via a very lean model relying heavily on CROs and outsourced development. By focusing on only fast-moving, highly promising assets (and strategically divesting those that aren’t), a very lean pipeline is maintained. This keeps capital allocated exclusively on getting product to market as quickly as possible. Then, either through licensing or third party distribution via a rent-a-salesforce, the products are sold into the marketplace.

Similarly, highly strategic mid-market PE investors (who typically invest in large scale opportunities closer to phase II or III) are making very small $1-5 million investments spread across a very broad range of very early stage assets, including academic laboratory research. The assumption is that by maintaining a hands-on approach and scrupulous focus on performance, a fund is capable of maintaining a portfolio of companies that not only have a promise of success on an individual basis, but as a collective whereby the whole is more valuable than the sum of its parts.

This approach allows investors to follow big pharma and provide solutions to upcoming pipeline gaps. It is also a more attractive opportunity for buyers down the line, because it is a fully integrated and curated portfolio with a strategic orientation towards marketability. The end result is a more efficient flow of capital through the industry, stronger drug development pacing, and an improved return profile for equity holders in life sciences companies that constitute the portfolio constituents.

Creating a Target List of Qualified Investors

29 Jan

By Brian Gajewski, VP of Sales, LSN

Many firms that are looking to raise capital in the life sciences arena have the difficult problem of finding a place to start – that is, figuring out how to gather a list of potential investor candidates to reach out to. As with most firms, the first pass at raising capital is with friends, family, and industry colleagues. This is a great category for the first couple million, but moving past this stage becomes a difficult task for many firms because of their lack of experience in raising capital.

Once a firm has exhausted the investments from that first stage of capital raising, the next step is to create a complete list of qualified investor leads that they can then begin reaching out to. LSN refers to this as a Global Target List (GTL). The fact that the life science arena is a global marketplace justifies getting past the regional mentality for fund raising efforts.

One of the first ways to start collecting investors is to target those that have invested in companies similar to yours over the past 5-10 years of financing rounds (another reason for the global approach). For that reason, it is very important to take the appropriate amount of time in performing research.  One best practice is to start by finding firms that are look-alikes, which are firms that have similar profiles to yours. This allows you to identify major investors in the space that have invested in similar firms based on therapeutic or device indication. For example, within the LSN platform, our clients are able to search through the past 12 years of financing in the life science industry by filtering the series & type of financing, as well as the date, sector, and phase of the product.

The next step in creating your Global Target List of investors is to create a list of foundations that might have an interest in your area of development. Foundations are a key investor in the life science industry because it fills two of their investment mandates – one being capital preservation, and the other, their philanthropic portfolio of investments. What is more interesting is that the donor lists to these foundations are in the public domain. The astute marketer can peruse this list and hopefully parse the high dollar donors and find a few nuggets that would be worth researching for an introductory call or meeting. The premise of this exercise is to remember that donors to foundations have a desire to move the science along for treatments and cures. Foundations are great vehicles to help move science along, despite being held back by process and bureaucracy. However, for some donors investing directly, companies that are moving the science along may be just as compelling.

It is important to remember that when your firm is raising capital, you are not just selling to people, but you are also selling to them a way to potentially affect the world. The most powerful reason for investors to allocate capital is that you are developing a cure for a disease that has affected them, their family or their people in their orbit.

Not only do you want to target foundations that might have an interest in your target indication, but also the major contributors to those same foundations. We are finding that more and more families are becoming interested in investing directly with a life science company.

Finally, you have to think globally, and create a Global Target List, but you must act locally – meaning, draw that two-hour road trip circuit, and figure out how many investors on your GTL are a short trip away. This is an excellent way to start to learn who your good targets are, and to give you the practice you need to make your presentations more compelling.

Now that you have a list of investors that have a specific interest in your type of company, it’s time to make sure you have the bandwidth to begin reaching out to them and tracking your success.

Hot Life Science Investor Mandate 1: CROs, CMOs Prime Targets for Opportunistic PE – January 29, 2013

29 Jan

A healthcare investment firm based in the Eastern US, which runs both a private equity fund and a hedge fund, is currently looking for new investment opportunities for their second private equity fund, which recently closed at $200 million. The firm has more than $500 million in assets, and has raised two private equity funds and one hedge fund in the past year. They have plans to invest in 3-5 new firms by the end of 2013, typically making equity investments ranging from $10-25 million.

The firm is currently most interested in firms in the biotech R&D services and medtech space. Within biotech R&D services, the firm is looking for contract research organizations (CRO’s) and contract manufacturing organizations (CMO’s). They have also recently started looking for firms within the medtech space, specifically those that are producing medical devices. The firm mainly invests in US-based companies, but has allocated to international firms in the past; they would consider European firms on a case-by-case basis.

The firm provides growth equity, expansion capital, and engages in buyout and recapitalization transactions. The firm only invests in established, cash-flow-positive companies. With that being said, the firm will not consider any companies in the medtech space that do not currently have a device on the market.

Hot Life Science Investor Mandate 2: VC Promises Fast Allocations – January 29, 2013

29 Jan

A venture capital fund in the Eastern US with around $20 million in total assets is currently looking for new opportunities in the life sciences space. The fund was created by its state legislature to promote economic growth. The organization has an evergreen structure, which means that they provide companies with incremental payments throughout the development phase of the product or company, rather than providing all of the capital to a firm upfront in one lump sum, which is the model that venture capital funds typically follow.

The fund, which is quasi-public, would allocate to a firm within the next six months if a compelling opportunity were identified. The firm’s typical investment size ranges from $300,000-500,000 per firm. Specifically, they are looking for medtech firms developing medical devices. The organization will allocate to firms that are pre-revenue, but the firm does need to have a prototype of the device. Additionally, they are interested in the healthcare/IT space.

Hot Life Science Investor Mandate 3: Corporate Venture Fund Seeks Therapeutics with Companion Diagnostics – January 29, 2013

29 Jan

A corporate venture fund with offices worldwide – one of the oldest in the world – is interested in the biotech therapeutics and diagnostics space. The fund has invested more than $500 million in the life science space since its founding, has an evergreen structure, and deploys capital on an opportunistic basis, pulling money directly from their main fund as investment opportunities are uncovered. They typically invest in up to 10 firms per year, usually allocating $1-10 million per company.

The firm is most interested in novel therapeutics, and would be especially interested in therapeutics firms that are developing a therapeutic with a companion diagnostic. They are also very interested in small molecule-based therapeutics, as well as companies producing medical devices. The firm has a global investment mandate.

In terms of their interest in therapeutics, the firm is looking for companies whose products are in the preclinical, Phase I, or Phase IIb (proof-of-concept) stage of development, and for medical device companies, the firm will look at firms that have a product in development or companies that have a prototype of their product.